NEW YORK, Sept 30 (Reuters) - Crude oil on both sides of the
Atlantic fell on Monday but pared losses late in the day as
traders bought contracts to square short positions as the third
quarter ended and as the likelihood of an imminent U.S.
government shutdown remained uncertain.

The Democratic-led Senate and the Republican-led House of
Representatives could not come to terms on an agreement to end a
stalemate on how to fund the U.S. government beyond Monday.

Senate Democrats shot down a proposal by the Republican-led
House of Representatives to delay President Barack Obama's
health care program for a year in return for temporary funding.

A senior House Republican said he did not think federal
government agencies would shut down at midnight, but he did not
provide details on how that might be avoided.

"I think there's still a lot of uncertainty with regard to
the shutdown with the government," said Stephen Schork, editor
of The Schork Report in Villanova, Pennsylvania. "You have some
shorts looking to get out, looking to get some money off the
table."

A government shutdown was expected to cut into demand in the
world's largest oil consumer, weighing on prices. It would force
hundreds of thousands of U.S. government employees across the
country to stay home without pay.

The U.S. Energy Information Administration said it does not
yet know if it will be able publish its weekly inventory data in
the event of a shutdown.

U.S. crude settled 54 cents lower at $102.33 a
barrel, paring losses from a session low of $101.05. Front-month
U.S. crude oil futures ended the month 4.6 percent lower, the
first monthly loss since May.

U.S. crude oil futures ended the third quarter 6.3 percent
higher as tensions in the Middle East drove prices to a more
than two-year high in August.

Front-month Brent crude oil futures settled 26 cents
lower at $108.37 a barrel, losing 5.1 percent for the month,
also the first monthly decline since May.

Brent hit a session low of $107.22 but ended the quarter
with a 5.8 percent increase, also driven by sharp gains in
August.

U.S. gasoline futures led the complex down earlier in
the day as traders sold positions as the front-month contract
expired at the end of trading on Monday. The October contract
expired 1.5 percent lower at $2.63 per gallon.

"The amount of gasoline we have on hand is more than ample,"
said Gene McGillian, analyst at Tradition Energy in Stamford,
Connecticut. "If we start to see refiners' seasonal maintenance
programs pick up that may change."

U.S.-IRAN THAW

Oil futures prices were also driven lower as tensions over
Iran's nuclear program continued to ease.

Obama and new Iranian President Hassan Rouhani spoke by
telephone on Friday, the highest-level contact between the two
countries in three decades as the two sides seek a deal over
Iran's nuclear program.

Exports from Iran have more than halved in recent years to
around 1 million barrels per day in 2012 due to tightening
sanctions.

Still, even with signs of rapprochement, the earliest that
Iranian oil would come on the market is six to 12 months, said
Ed Morse, managing director of commodity research at Citigroup
in New York.

"On the best time frame on an agreement, oil will remain off
the market in substantial volumes for six months, if not 12
months," Morse said, noting that a deal would have to be reached
on restricting uranium enrichment with the West, and the United
States would have to ease laws that make allowing increased
exports difficult.

World powers are due to hold a new round of talks over
Iran's nuclear program in mid-October in Geneva.

Supply concerns have also eased in recent weeks as exports
from Libya have recovered to above 580,000 barrels per day,
following weeks of disruption.

Investors cut their net long positions in Brent for a fourth
week in a row to 167,745 contracts, the Intercontinental
Exchange said.
(Additional reporting by Matthew Robinson and Anna Sussman in
New York, Ron Bousso in London, Florence Tan in Singapore;
Editing by Jane Baird, Keiron Henderson, John Wallace and Peter
Galloway)